New Delhi: Overcoming tensions in their bilateral relationship, India and Pakistan on Thursday took key steps to end the discriminatory regime that restricts official trade between the two countries to about $2 billion (Rs8,860 crore).
India’s annual trade is worth around $600 billion.
At the end of the two-day meeting between Indian commerce secretary Rahul Khullar and his Pakistan counterpart Zafar Mehmood, both sides issued a joint statement to this effect. Experts say the deepening of economic ties will hasten the thaw in the political relationship between the two countries.
Pakistan agreed to a longstanding demand from India to take “immediate necessary steps” to ensure that the non-discriminatory trade regime with India is operationalized by granting preferential treatment to Indian goods under the South Asian Free Trade Agreement (Safta) by October. “The consultative process in this regard has been set in motion and information from all stakeholders, including business chambers and trade bodies, is being collected to replace the present positive list to negative list,” the statement said.
Preferred trade under Safta, which came into effect in 2006, is based on a so-called negative list of merchandise that cannot be traded among members. Pakistan, on the other hand, maintains a so-called positive list of around 2,000 items that India can sell in that country. However, it provides all other Safta members preferred access to its market for more than 4,000 products.
Both sides also expressed their intent to explore the possibility of entering into a mutually agreed preferential trade agreement to further bilateral trade, by extending tariff concessions on products of export interest to both countries.
The two sides agreed to reduce or remove tariff and non-tariff barriers. A working group will address and resolve sector-specific barriers of trade.
Pakistan recognized that grant of most favoured nation (MFN) status to India would help in expanding bilateral trade relations, although it did not commit to any progress on this front. Both sides also agreed to remove non-trade barriers and all other restrictive practices that hamper bilateral trade.
Biswajit Dhar, head of Delhi-based think tank Research and Information System for Developing Countries, said there seems to be movement on MFN status. “This is very important for bilateral trade because so far trade was happening through third countries through Dubai and Singapore, which means added cost for products from either country exported to the other,” he added.
“Let’s hope this (Pakistan recognizing that granting MFN will improve trade ties) is the first step. Earlier Pakistan was not willing to talk about this without progress on Kashmir. If trade relations improve, there will be movement on the political level because a constituency for peace will be created for better ties. We must recognize that this acknowledgement is an important step,” Dhar said.
Pakistan agreed to remove its present restrictions on trade through land routes by October, as soon as the infrastructure for the second gate near the Wagah-Attari land route is completed. The Indian side intimated that the new integrated checkpost is expected to be fully functional by October this year, though it needs better joint coordination from both sides. The two sides also agreed to increase trading hours to take advantage of the new infrastructure, expedite clearance of cargo, and facilitate the movement of large vehicles and containerized traffic.
“The entire region can benefit if the two big economies in the region can start moving closer to each other,” Dhar added.
The joint statement said it was agreed that the Pakistan side would remove its present restrictions on trade through land routes by October, as soon as the infrastructure to facilitate mutual trade is completed.
Both countries also agreed to explore the feasibility of trading electricity. A group of experts will address issues such as suitable sites, routes for transmission lines, funding mechanisms and other related issues. The composition of the group will be finalized before end-June and the first meeting will be held by October.
Pakistan also agreed to lift the present ban on the import of petroleum products from India, which may open a new market for Indian companies. An expert group will discuss “trade arrangements, building of cross-border pipelines and use of rail/road route, including Munabao-Khokrapar route”, the joint statement said.
A new initiative to promote bilateral trade in Bt cottonseeds was also identified. This could help Pakistan’s farmers and its textile industry by significantly raising cotton yields.
The two sides also agreed to facilitate grant of business visas. Both sides also agreed to promote bilateral investments by removing prevailing impediments. India currently does not allow Pakistani investment in its companies.
Both sides also agreed to speed up the process for the opening of bank branches in each other’s countries.
India’s exports to Pakistan grew 9.3% to $1.57 billion, while imports contracted by 25% to $276 million in 2009-10, according to the latest data available.
Bilateral figures are considered to be under-reported because of indirect trade through countries such as the United Arab Emirates.
Former foreign secretary Kanwal Sibal, however, dismissed the proposals in the joint statement as “timid and tentative”.
“Setting up a joint working group means postponing decisions that they could have taken soon. This is to maintain the appearance of movement that fits into the objectives of both countries,” he said. “Pakistan will never allow itself to become energy dependent on India till there is tangible progress in bilateral relations.”